Health Minister Peter Dutton has stated that Australia’s health budget is becoming “unsustainable” and that the country needs to have “a conversation” about Medicare. Echoing these comments, the Treasurer Joe Hockey has said that Australia is “going to run out of money to pay” for our health systems. If the government is serious about finding savings in the health budget, there is one area that is ripe for reform – an area of huge expense that delivers little benefit to the community. The private health insurance rebate is the fastest growing area of expenditure in Australia’s health budget, and is long overdue to be scrapped. However, this is unlikely – in spite of the tough talk from the Treasurer and the Health Minister, Tony Abbott has stated that “private health insurance is in our DNA”.

The 30 per cent private health insurance rebate costs around $4.7 billion per year, with this cost rising every year as the rebate is uncapped and therefore, as premiums rise, so too does the cost to the public purse of the rebate. Self-evidently, the rebate has failed to stabilise private health costs, which have in fact increased markedly since the rebate was introduced. Indeed, two days before Christmas the Health Minister Peter Dutton announced an average increase of 6.2 per cent for health insurance premiums – the highest since 2005. As people pay more for private health cover, the public also pays more in subsidies for this cover, and as the cost of private health cover rises, the rebate is much more likely to be used to subsidise the costs of those on high incomes.

After Holden recently announced that they would no longer make cars in Australia, Abbott (after declaring the workers “liberated”) said that “this government will be very loath to consider requests for subsidies, we will be very loath to do for businesses in trouble the sorts of things they should be doing for themselves.”

Perhaps that logic applies only to businesses in trouble, and not to businesses that are doing well. The two biggest private health funds in Australia are Medibank Private and Bupa, who between them have a market share of more than 50%. Medibank announced a full year profit of $233 million last year, while Bupa’s was $196.7 million. Responding to questions as to why the government would not assist the SPC Ardmona plant in Shepparton with a $25 million grant, Abbott pointed to the profits of SPC’s parent company Coca Cola Amatil, who made $215 million in the last six months. Private health funds, receiving billions in subsidies, are evidently exempt from the same logic.

Support for private health insurance has largely escaped scrutiny in Australia, but as John Menadue and Ian McAuley showed us in their 2012 paper on the subject, it is increasingly apparent that the rebate is a public policy failure. It has not stabilised health insurance premiums, continues to grow rapidly in cost, and worst of all, fails to relieve pressure on the public system – its much touted rationale. Where the funding goes, resources will follow. If patients move from public to private hospitals, then staff will follow them.

The Abbott government talks tough on government programs, with the Treasurer declaring the end of the “age of entitlement” with the country embarking on what he calls the “age of personal responsibility”. The government has firmly stuck to its position that it will not prop up uncompetitive businesses, with the Prime Minister declaring of the government he leads “we don’t believe in corporate welfare.” Reviews have been declared into the welfare system, and of course the National Commission of Audit will soon deliver its findings. However, the government is deeply committed to handing out billions of dollars to profitable insurance companies, with little public policy justification for these payments.

Labor did the right thing in government by introducing a means test on the rebate, however the next step must be to wind it back altogether. The chances of that happening under the Abbott Government, even in the “age of personal responsibility” are non-existent, however the evidence, as well as the government’s own rhetoric on government expenditure , strongly support this proposition.